Club Property

Whilst we do not expect the market to crash, it will be increasingly difficult to make new sales.

People will, of course, purchase new property, but the property on offer will need to be better tailored for, and marketed to them.

The development industry has become quite sloppy in recent times.  Sales down south (Victoria largely) have been too easy and the attention to service/detail limited at best.

Things are now changing.  Melbourne is past its peak and is at 1 o’clock on the property clock.  The Victorian market is now oversupplied with both new and existing stock; confidence is low and there are fewer jobs being created today than in the recent past.

End prices are also high and somewhat unaffordable.  Rental growth, whilst still positive, is now sluggish and is likely to remain so, with the city having the highest vacancy rate of any Australian capital, at over 4%.

Brisbane, my home town, in contrast is at the bottom of the cycle and is about to experience a recovery.  As noted above, Brisbane was in the same position as Melbourne was in mid-2007.

It has taken four years – last year’s flood did delay Brisbane’s upturn by about a year – for Brisbane to start showing signs of improvement.  It could take Melbourne this long too – at best two to three years – to recover.  History – as well as Mr Twain – supports our claim.

There are several things that the development community can do to improve sales.

• Make their projects look different.  Buyers tell us that they are all too generic.

• Provide a lot more detail about future development, in their project itself and in the local area.  Detail is expected regarding the citing of homes and such things as outside entertainment areas, bedrooms and air-conditioning.  In a perfect world, developers would be best to sell built stock.

• Don’t hide anything from the public, including full price lists and dwelling designs.  They know much more about the project and the competition than sales people give them credit for.

• Implement a loyalty system.  Repeat customers should be treated as such.

• Match sales staff (demographic, experience) and the décor, interiors and furnishings (the actual product design of course) to the demographic.  A 25-year old single selling to a middle-aged couple doesn’t work too well.

• Make much more of your brand and development pedigree.  Buyers want to know more about who you are.

• Relax at the launch.  Don’t put too much pressure on potential buyers then…the time to close is much later in the sales process.

• Follow-up constantly and not just before settlement.  Buyers want to be informed.

On a final note – people buy something new because it should be less hassle than buying second-hand and fixing it up.  Developers need to ensure that the buying experience is hassle-free too.

New developments meet today’s strict environmental compliances, which help save buyers money and also give them peace of mind when it comes to resale.

For investors, buying something new often provides a better return.  This is due to the attractive depreciation allowances that come with buying new over old – something that too few investors understand – and that new property, on average, has 15% to 20% more value in it than an older property in the same area.  Think about the true cost of a new kitchen, bathrooms, carpeting, painting, landscaping and again all the ESD stuff.

via matusikmissive.wordpress.com

By Terry Ryder, 7th February 2012

The extraordinary ability of economists to collectively get in wrong most of the time has again been demonstrated, with the Reserve Bank deciding at its meeting today to keep interest rates on hold.

Most economists had bet the Reserve Bank would cut rates by 0.25 percentage points, apparently convinced that worries about the economic situation in Europe would be the key issue.

A survey of 18 economists by Dow Jones Newswires showed that 16 expected the RBA to lower its cash rate to 4 per cent.

Economists said that the RBA had room to cut rates largely because they remained high by world standards. The weak global economic backdrop, evidence of accelerating layoffs locally, and low inflation helped round out the justification for a cut.

However, rates will remain at 4.25% for at least another month. The RBA cut rates in both November and December and clearly feels that is enough for now, particularly with so much conflicting data around at the moment.

Retail sales have continued to be patchy but job advertisements in January showed a strong rise and real estate data continues to be more positive.

Headlines in the past week have included these, as media has indulged the chattering economists, despite their tendency to be off-target with their forecasts:–

Interest rate cut increasingly likely

Economic data points to interest rate cut

Interest rates poised to drop amid flat retail sales

RBA tipped to lower cash rate after data shows economy struggling

If you read the mainstream you probably think it’s bad news for Australia if house prices keep falling.

That it’ll be bad for the banks (which it will be). And that the entire Aussie economy will grind to a halt.

But what if that doesn’t matter?

What if falling house prices is actually a good thing?

In a moment we’ll explain why bad news for the housing market could mean good news for stocks…

But first, some in the mainstream still can’t accept what’s happening.

In today’s the Age, Ian Verrender writes:

“Rather than the much-heralded assault on the Australian residential housing market, as has been predicted for the past five years by an ever-increasing host of international and domestic doomsayers, we are instead witnessing an orderly retreat.”

Arguing against a house price crash is so 2009.

Perhaps Mr. Verrender should look at the latest press release from RP Data. Especially the following chart:

Tell buyers in Brisbane, Melbourne, Hobart, Adelaide, Perth and Darwin prices haven’t crashed. Remember it wasn’t so long ago the mainstream told you Aussie house prices can’t fall.

In reality, the crash started long ago and is in full flight now. It’s wreaking havoc on those who expected to make a killing buying a house two years ago.

But now they’re learning Borrowing 101 the hard way. They’ve found out leverage is a double-edged sword. You benefit when prices rise. But you lose when prices fall. For the poor souls who bought at the peak, using a 90-95% mortgage, they’re already in negative equity.

In fact, a buyer needs prices to rise at least 10% in the first year just to break even – after factoring in buying costs and mortgage costs. So when prices fall 8.7% (as they have in Brisbane), it’s a big deal.

Because now those buyers need the price to rise at least 20% to get back to square one. And the more time passes without prices going up, the worse it gets. The knock-on effect is others will fall into negative equity too.

This is something most of the so-called property experts don’t get. They’re too busy with their fancy spreadsheets and economic models to fathom the impact of falling credit.

But failure to understand credit isn’t their biggest mistake. Their biggest mistake is to think housing drives economic progress.

It doesn’t.

Housing is the reward for economic progress.

Or that’s how it should be.

Except the credit bubble distorted the market. Rather than working hard to achieve the reward, credit has allowed consumers to get the reward first with the promise they’ll earn it later with hard work.

Trouble is, with so much effort going into building the reward, they forget about the rest of the economy. We liken it to an athlete stuffing his face with cream cakes before the race because he’s so certain he’ll win. Only, when it comes to running the race, with a belly full of cake, the athlete is no longer in the right shape to win.

That’s what happened to the U.K and U.S. housing markets. And it happened to the Aussie housing market too.

With so many resources going into building houses and apartments… and so much bank lending going towards housing… real businesses miss out.

But now, with falling house prices, could this actually spell good news for Aussie businesses and stocks? If so, it could mean higher stock prices and bigger returns on your investments.

Think about it…

You could see a shift towards stocks if investors wake up to the idea that housing is an expensive investment and that returns aren’t guaranteed.

If you’re an investor who’s concerned about the future, do you really want to take out a six-figure mortgage and pay tens of thousands of dollars in buying and holding costs? Or would you rather stick cash in the bank and take a few speculative punts on the stock market?

And consider this: is it a coincidence that U.S. home prices keep falling even though the U.S. stock market has more than doubled since March 2009?

Of course, central bank money-printing and low interest rates have played a large part in boosting stock prices.

But why didn’t it boost house prices? Simple, because housing is expensive and investors lost faith in the ability to make a buck from it.

Now, “Australia is different”, you’re always told. Because, in Australia, the Reserve Bank of Australia (RBA) can lower interest rates to stop house prices falling, boost demand and push prices up.

So far that hasn’t happened. In fact, the latest home sales numbers show the RBA’s last two interest rate cuts haven’t helped the Aussie housing market.

As even the housing bulls at CommSec note…

“New home sales fell by 4.9 per cent in December and was holding just shy of the 11-year lows reached in September.”

If what happened in the U.S (and U.K.) is anything to go by, there’s a good chance the same pattern will repeat here: investors will stay clear of expensive housing and buy stocks instead.

Remember, interest rates are low because central bankers want to stimulate the economy… because investors, consumers and businesses are cautious.

And as long as that continues (and it seems set to) it’s unlikely consumers will borrow large amounts of money to buy risky, illiquid and over-priced housing…

Not when you can buy dividend paying stocks that pay an income stream and growth stocks that you don’t need to borrow a fortune to buy.

Already Aussie investors are unknowingly following the lead from overseas. They’re getting tired of falling bank deposit rates and are instead looking at the risky and liquid but not over-priced shares in the stock market.

As far as 2012 goes, there’s no argument. The more house prices fall, the better it is for stocks.

Cheers.
Kris.

via moneymorning.com.au

In the past Generation Y have been branded with a less than flattering reputation as selfish, spendthrifts. Perceived as wanting it all and wanting it yesterday, older generations tended to believe that this young demographic group were incapable of financial sensibilities and as such, would struggle to get a foot on the increasingly pricey property ladder.

However the days of carefree spending and sponging off their parents could be a thing of the past for many Gen Y’s according to the results of a recent housing affordability study.     

The results of the Housing Affordability Sentiment Index, published in a Herald-Sun article, reveal that most Gen Y’s are prepared to forego many luxuries in order to achieve their own great Australian dream of home ownership.

More Gen Y’s are sacrificing their independence to live at home longer in an attempt to save for a deposit – a trend dubbed the “Famwich” and despite ongoing talk of affordability issues, they remain optimistic about their ability to get their foot in the property door in the future.

Social commentator David Chalke, says young Australians aged 18 to 31 have been unfairly labelled as non-committal and self-indulgent, but on the contrary, they’re actually focused on their future and determined to get ahead by budgeting and saving.  

“Gen Ys are better educated, more connected and informed, active savers and smarter than previous generations,” he said.

In fact it would seem Gen Y’ have more in common with their baby boomer counterparts than this older generation would be prepared to admit, with a renewed focus on saving rather than spending among Australians today.

Economic uncertainty, rising interest rates and poor consumer confidence have taken their toll on Australians, with the “greed is good” attitude that saw many take on enormous consumer debt earlier this century being replaced with the financial conservatism displayed by our parents’ generation. 

The report, which polled 2200 people nationally, said Gen Y’s are prepared to spend less on discretionary purchases such as brands and luxuries (91 per cent), entertainment and recreation (76 per cent) and car upgrades (76 per cent) to achieve their housing dreams and most are prepared to give up a swimming pool, extra space or multiple bathrooms.

Interestingly though more than half were not willing to sacrifice location, with an overwhelming desire to live within 10 kilometres of their ideal location. For some, this is the suburbs where they grew up, but for many upwardly mobile young Aussies, their money is on the inner city where employment opportunities and lifestyle are an undeniable drawcard. 

Watch out for the Gen Y’s – they be shaping the future of our property markets.

Backyards, barbeques and big houses have been the norm with Australian home owners for generations. But what of future generations?

Some demographers suggest we are so in love with the idea of having big spaces to raise a family that it’s impossible for us to change, even as our population is set to grow exponentially over the next fifty years and many are concerned as to where all of these new people will live.

Sure the baby boomers and many of their Gen X offspring have found it hard to sacrifice sprawling McMansions in favour of smaller accommodation, but will Gen Y be more inclined to embrace higher density living?

An  article in Smart Company last year points to a new report from the Grattan Institute, which indicates a growing trend toward apartment style accommodation in Australia.

The study, aptly entitled The Housing We’d Choose, found that Australians want more apartment-style housing and are moving away from detached housing.

It also found we’re not building enough of the type of accommodation more and more people want.

Not enough apartments to go around

In 1976, detached dwellings made up 78 per cent of all accommodation, however by 2006 this had dropped marginally to 74 per cent.

While 4 per cent doesn’t represent an enormous decrease, it’s interesting to note that many respondents indicated a preference for apartment living, with the issue being a lack of higher density stock compared to the vast number of detached homes on the market.

The report suggests that there are potentially thousands of tenants and home buyers out there who simply cannot find the type of accommodation they are seeking in the places they most want to live.

Author of the report, Jane-Frances Kelly, says there is an ever increasing divide between the style of housing people want and what’s available and that the construction industry needs to be more aware of our changing needs and place greater emphasis on affordable, higher density options.

Over the years our perception of townhouse and apartment living has changed. Where once we saw medium and high density developments as “slums” intended for lower socio-economic classes, in the last twenty or so years apartment and townhouse living has become the practical and trendy alternative, sought after by young, upwardly mobile professionals in particular.

“In short, many of the detached houses…are a legacy of a time when Sydney and Melbourne were different cities. Today’s stock reflects attitudes formed and decisions made under different conditions, some of which no longer apply,” says Kelly.

So why aren’t we building more apartments?

Well we are…. in some locations.

The growth in apartment popularity has certainly influenced the Melbourne skyline of late, with a saturation of new stock hitting the market and more set to come on line in the next twelve months.

In fact I’m concerned that there will be an oversupply of apartments in the Melbourne CBD that this will create a severe price correction in that market. Especially as many have been bought by investors, some who won’t be able to settle their purchase and others who won’t be able to find tenants at a time when we have fewer overseas students coming to Australia.

An oversupply of CBD and new near city apartments is also looming in Brisbane.

But in general the high cost of land, local council restrictions, the resistance of local communities, high development costs and difficulty obtaining funding is stifling new apartment development in many of our inner and middle ring suburbs.

Then of course there are the infrastructure constraints to consider – namely pubic transport access and the capacity for existing roads and public facilities, such as schools and hospitals, to handle the type of rapid growth in resident numbers that higher density housing would create.

Some lessons for investors

Let’s face it…as our population grows there’s no doubt we will need to embrace the apartment culture.

This should not be a real problem as fortunately our lifestyle preferences are changing with many Gen Y’s prepared to trade a back yard for a balcony.

It’s no coincidence that over the last few years investors who owned well located apartments have done well as capital growth and rental growth has often outpaced growth in detached housing.

But as always… you can’t just buy any apartment and hope it makes a good investment. I’d steer clear of generic, off the plan, and in particular, CBD stock. Inherently these lack scarcity and will be more risky in the next few years due to the glut of similar developments coming on line.

For my money, you would do much better buying an established apartment in a highly sought after, near city or bayside locations where you’ll find smaller, boutique style apartments and townhouses that are always in favour with buyers and tenants. Sure they might need a bit of a facelift, but this is just a chance to add value to what already represents an asset with excellent potential for strong long term growth.

via propertyupdate.com.au

Location: 43 Berkley Ave
Hillcrest
Hamilton
Waikato
Rooms: 3 bedrooms, 1 bathroom
Property type: House
Floor area: 110m2
Land area: 809m2
Rateable value: $340,000
Price: Asking price $355,000
Property ID#: CFF294
Parking: Double garage, with plenty of off street parking.
In the area: Close to Hillcrest Normal, Silverdale Primary, Berkley Intermedia­te and Hillcrest High School
Fantastic Sunny 3 bedroom brick home in the great suburb of Hillcrest. This house has been loved and recently renovated with new bathroom and kitchen and insulated for winter. Great outdoor living/bbq area. Fenced back section with plenty of room for the children and pets. Double garage.

When collateral for one loan serves as collateral for other loans as well, it is called cross collaterization. The most common example being the case when a person wants to buy a new residential investment property using the family home as the collateral security.
Note:The properties being used as collateral both need to valued by a registered valuer unless the Loan To Value Ratios are so low that an existing rates valuation will suffice.

For most people starting out in the investment world however it is a long wait before they have enough equity in their home so that they can cross collateralise into another property.

So whats the solution?

Stock Trading

How can this be useful for buying shares? Borrowing against your home to buy blue chip shares is a great way to unlock some of the equity you have created over the years without having to take out too large a mortgage as you might if you were borrowing to buy another home. It also allows you to invest in income producing assets sooner than you could if you waited until you could afford that next investment property. The reason this is possible is because banks will allow some assets (like property) to be borrowed against, up to a “Loan to Value Ratio,” or LVR of 90%. This is the relative amount of the sum loaned against a property with respect to its value, for example, a house that is valued at 500,000 with 250,000 debt has an LVR of 50%. That is, the owner has borrowed an amount which is 50% of the value of the property. Some or the entire remaining equity can be utilized as collateral for another mortgage. Cross collateralization is usually used to acquire additional property however it is not unusual for more risk adverse investors to also cross collateralize their homes into the share market.

If you are the sort of investor who wants to follow a strategy like this remember that leverage is a double edged sword, the returns are magnified on the way up but they are also magnified on the way down.

This is a question that has been asked of me a thousand times over the years and basically the answer is the same in Australia and it is in New Zealand.

In this article one of Australia’s top commentators on real estate discusses the merits of old vs new with respect to property investment.

Go for it Michael

In spite of the battering that the residential market has taken of late, many Australians still aspire to own investment property.

When considering whether to buy new versus older property, price is only ever part of the equation.

And buying a new dwelling has numerous benefits over buying a second-hand property.

One important benefit that new homes offer investors is great capital depreciation, with up to 60% of the built cost being tax-deductible over time.

When considering a brand new investment property, and in particular, when deciding to build or purchase off the plan, it is wise to obtain advice from a depreciation specialist as early in the planning stages as possible.

That way, an investor will be aware of the best choices to make in order to maximise depreciation benefits.

For example, when a property is being built, the selection of fittings and fixtures will determine their dollar value in terms of depreciation deductions.

And this, in turn, will make a difference to the cash flow potential of a new investment property.

Let’s look at floor coverings by way of an example – carpet, versus timber floorboards, versus tiles.   For depreciation purposes, each of these is deemed to have an effective life.  Carpet – 10 years; timber floorboards – 15 years; and tiles – 40 years.

A $2,000 outlay on floor coverings, for example, would result in the following depreciation benefits in the first year:  Carpet – $400; timber floorboards – $267; and tiles – $50.

Similarly, for a $2,000 expenditure on lighting, ornamental lights with a five-year effective life would incur an $800 depreciation benefit in the first year, versus down lights with a 40-year effective life and a $50 depreciation benefit in the first year.

And naturally, depreciation benefits continue in subsequent years until all amounts are exhausted.

Armed with this sort of knowledge, an investor might find it financially viable to upgrade a level of finish from, say, low to medium or medium to high.

But it takes an expert in the field to keep up with the machinations and new methodologies of the ATO, and to structure depreciation schedules that will maximise benefits for owners.

These days, for example, renovating is on the rise.  And what some new or would-be investors may not know is that they can claim deductions for an old property that is scrapped.

When building a new investment property and tearing down an old home, items that are scrapped or removed, such as carpet, air conditioning units, stoves etc, may have left over value that can be claimed as a tax deduction in the year of removal.

The same applies to the qualifying structural element of the property.  But the important thing is to obtain a tax depreciation report pre-demolition, in order to be eligible for any savings at tax time.

Depreciation is basically a numbers game, but with a twist.  Broadly speaking, most of a building is claimed at 2.5% per year for 40 years, however, up to 25% of the total construction cost can be written off more quickly.

Good luck with that investment.

via matusikmissive.wordpress.com

Australia’s lenders repossessed 22.5 per cent more homes in 2011 than in 2010, new data has revealed.

A number of NSW beachside suburbs on the Central Coast were hit hard, with Terrigal and The Entrance both recording a high number of repossessions.

The western suburbs of Sydney were also hard hit.

The latest repossession figures come as little surprise to industry pundits, with recent data from Genworth Financial showing more than 25 per cent of Australians are currently suffering from mortgage stress.

According to Genworth’s latest Homebuyer Confidence Index, released in September, mortgage stress has increased from 21 per cent in March 2011 to 25 per cent.

RFi director Alan Shields told Real Estate Business that borrowers were struggling under the rising cost of petrol, electricity and groceries.

“The general cost of living has increased dramatically over the past few years and this is impacting borrower confidence. In addition, at the time of this study, the carbon tax was also playing upon people’s minds,” he said.

via rebonline.com.au